On Monday, Allison Transmission (NYSE:ALSN) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Allison Transmission reported a 4% year-over-year decrease in first-quarter net sales to $733 million, largely due to a strong prior year period.
The company's Defense end market showed significant growth with a 64% revenue increase, contributing positively to overall performance.
The Allison Off Highway business unit generated $673 million in sales, driven by strong demand in mining and construction markets.
Allison Transmission is focused on realizing $120 million in annual run-rate synergies from the integration of its business units.
The company reaffirmed its full-year 2026 guidance, expecting consolidated net sales between $5.575 billion and $5.925 billion, and adjusted EBITDA margins in the range of 27% to 29% over the next few years.
Management emphasized the importance of disciplined execution and synergies to drive future margin improvements and underscored strong cash flow and capital allocation towards debt reduction and shareholder returns.
Full Transcript
OPERATOR
Good afternoon. Thank you for standing by. Welcome to Allison's first quarter 2026 earnings conference call. My name is Shamali and I will be your conference call operator today. At this time, all participants are in a listen only mode. After prepared remarks, Allison executives will conduct a question and answer session and conference call. Participants will be given instructions at that time. As a reminder, this conference call is being recorded. If anyone should require operating assistance during the conference, please press Star 0 on your telephone keypad. I would now like to turn the conference call over to Jackie Bowles, Executive Director of Treasury and Investor Relations. Please go ahead. Jackie.
Jackie Bowles (Executive Director of Treasury and Investor Relations)
Thank you. Shamali. Good afternoon and thank you for joining us for our first quarter 2026 earnings conference call. With me this afternoon are Dave Graziosi, our Chair, President and Chief Executive Officer Scott Mel, our Chief Financial Officer and Treasurer Fred Boley, Allison's Chief Operating Officer and Allison Transmission Business Unit Leader and Craig Price, Allison Off Highway Business Unit Leader. As a reminder, this conference call, webcast and this afternoon's presentation are available on the Investor relations SECtion of allisontransmission.com A replay of this call will be available through May 18th. As noted on slide 2 of the presentation, many of our remarks today contain forward looking statements based on current expectations. These forward looking statements are subject to known and unknown risks, including those set forth in our annual report on Form 10K for the year ended December 31, 2025. Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those that we express today. In addition, as noted on slide three of the presentation, some of our remarks today contain non GAAP financial measures as defined by the SEC. You can find reconciliations of the non GAAP financial measures to the most comparable GAAP measures attached in this appendix to the presentation and to our first quarter 2026 earnings press release. Today's call is set to end at 5:45pm Eastern Time. In order to maximize participation opportunities on the call, we'll take just one question from each analyst. Please turn to Slide 4 of the presentation for the call agenda. During today's call, Dave Graziosi will provide a business update and briefly review the company's performance. Scott Mel will then discuss Allison's segment reporting structure and Further review Allison's first quarter 2026 financial performance and Allison's full year guidance update prior to commencing the Q and A. Now I'll turn the call over to Dave.
Dave Graziosi (Chair, President and Chief Executive Officer)
Thank you. Jackie, Good afternoon and thank you for joining us. Please turn to Slide 5 of the presentation for our first quarter business update. First, I want to recognize and thank our global employee base for all the work done so far this year. Our teams have been working diligently on integration and value capture within both Allison business units. Our execution has tracked closely with our planning and the integration process is proceeding in a disciplined and structured manner. Having said that, it has not been without a tremendous amount of effort by the Allison teams to arrive at where we are today. As our teams more closely coordinate efforts, we are beginning to see the initial phases of synergy realization take shape across several key areas and expect to begin to see financial benefits later in 2026. It's been encouraging to see the groundwork laid prior to the transaction translate into real momentum and reaffirmed guidance in achieving our target of 120 million of annual run rates synergies. We remain confident in our acquisition thesis, accelerating sales growth through the strategic combination of the two business units, strengthening our localized production footprint and generating sustainable cost reductions that enhance long term shareholder value. Allison's reach is now greatly expanded with our global operations, allowing for more localized production and opportunities for cost reductions. By leveraging increased purchasing scale and utilizing manufacturing in best cost countries, we expect to drive value creation and margin improvement across our business. I want to give another welcome to our new colleagues around the world and thank you for all that you do. It's been a productive first quarter and exciting times for Allison as we enter this new chapter. Moving now to a brief update on first quarter sales, performance and end market outlooks for both of our business units, please turn to slide 6. Starting with our legacy Allison Transmission business first quarter net sales were $733 million a year over year decline of 4% when compared against a robust first quarter of 2025 for the North America on Highway end market. We continue to view the truck market with cautious optimism. Although order trends have shown strength and implies slight ramp throughout the year, we believe there is still uncertainty surrounding geopolitical impacts, including tariffs and final rulings on emissions regulations that are hindering end users new vehicle purchasing decisions. Continuing with the Allison Transmission business unit, the Defense end market had an extremely strong first quarter with revenue up 64% year over year. We continue to see strength from international customers primarily in track programs with both legacy and new products, including our 3040 MX cross drive transmission. We hold a favorable outlook for the Defense end market as national security becomes even more relevant to nations around the world, leading to increased budgets and new programs being funded. Please turn to Slide 7. The Allison Off highway business unit generated $673 million of sales in the first quarter with continued growth in the mining end market driven by elevated commodity prices including gold, copper and rare earth minerals. The construction and material handling end market also performed in the first quarter as global construction markets are seeing steadier investments and positive developments, particularly in Europe in the agriculture end market. While commodity prices remain a driving factor, there are early positive indicators in certain sub segments and regions, for example the low horsepower market in India, but overall a fairly muted environment even prior to the start of the conflict in the Middle East. On that topic, the conflict in the Middle east currently has undetermined impact and implications, both favorable and unfavorable for multiple end markets across Allison business units. While the duration of the conflict remains uncertain, we have not seen any material disruption to our business at this time. We recognize the potential for indirect impacts across our supply chains, energy markets and and broader macroeconomic conditions, and our teams are actively monitoring and maintaining close coordination. In summary, integration is progressing as expected and value capture is materializing. End markets, although impacted by uncertainty in some aspects, are steady if not showing signs of recovery. To everyone across our organization, thank you for the extraordinary commitment, resilience and teamwork you've shown. Your efforts have laid a strong foundation for Allison's futures. To our investors, we are confidently positioned to unlock meaningful synergies, accelerate growth and create lasting value. Now I'll pass the call over to Scott for a review of Allison's segment reporting structure, first quarter 2026 financial performance and full year guidance update.
Scott Mel (Chief Financial Officer and Treasurer)
Scott, thank you Dave and thanks to those of you joining us on the call. Please turn to slide 8 of the presentation. Before we begin with segment and consolidated results, I want to quickly go over some housekeeping items and outline our new reporting structure. First quarter results now include segment reporting for Allison Transmission, Allison off highway and Allison Central Group. The Allison Transmission Business unit is the company's legacy business excluding certain costs now accounted for within the Allison Central Group, while the Allison Off Highway Business unit reflects the business acquired from Dana at the beginning of the year. Allison Central Group is a centralized cost center which includes certain functional costs that support the Company's global operations. Now on the left hand side of Slide 8, we provide sales, operating profit and adjusted EBITDA by segment. Segment operating income flows over to the consolidated table on the right with further detail down to net income and non GAAP financial measures of adjusted diluted EPS and consolidated adjusted ebitda. Please note that first quarter gross profit in the Allison off highway segment was negatively impacted by approximately $76 million of one time acquisition related purchase price accounting items on a consolidated basis. First quarter net income decreased year over year to $112 million driven by the addition of costs from the Allison off highway business unit including approximately $76 million of expenses related to the stepped up basis in inventory and incremental depreciation expense related to the stepped up basis in fixed assets and an additional $22 million of intangible asset amortization expense. The year over year decrease in net income was also driven by higher interest expense net along with approximately $17 million of one time acquisition related integration expenses. Moving down to per share earnings, first quarter diluted EPS was $1.33 when excluding the effect of non cash, non recurring, infrequent or unusual items. Including the costs associated with the acquisition of the Allison off highway business unit. Adjusted net income and adjusted diluted EPS were $216 million and $2.57 per share respectively. As a reminder, reconciliations for non GAAP financial measures can be found in the appendix of the first quarter earnings presentation and earnings press release. There will also be more detail provided in our 10Q to be published later this week. Please turn to Slide 9 of the presentation. First quarter adjusted diluted EPS of $2.57 increased 6% year over year and we expect the acquisition of the Allison off highway business unit to be accretive to earnings on a full year basis. Adjusted EBITDA for the first quarter was $362 million, increasing 22% year over year with adjusted EBITDA margin at 26% reflecting disciplined execution across our business units despite the less than ideal operating environment. As we have discussed previously, we believe that improving end market conditions in both business units will have a favorable impact on margins. Our value capture and synergy realization will also provide an uplift to our margins with our target for adjusted EBITDA margin in the 27 to 29% range. Cash generation continues to be a key attribute of Allison with the ability to generate substantial cash flow while successfully integrating the Allison off highway business unit and navigating uncertain end market environments including geopolitical policies and conflicts. Now I will briefly highlight our capital allocation priorities. We continue to invest for long term and sustainable growth across our business units with new products and initiatives targeting identified growth opportunities. We are also focused on debt reduction to achieve our near term leverage targets and while simultaneously returning capital to shareholders through share repurchases and our quarterly dividend. At the bottom of the slide you can see how we allocated capital in the first quarter during the quarter we repaid $150 million of the $300 million of outstanding borrowings under our revolving credit facility, which were used as part of the funding for the Allison off highway acquisition. During the quarter we also increased our quarterly dividend for the seventh consecutive year, currently at $0.29 per share, our quarterly dividend has nearly doubled over the last seven years. And finally, we maintained our commitment to share repurchases with $20 million of our common stock bought back in the first quarter. We ended the first quarter with approximately $1.2 billion of share repurchase authorization remaining. Even with the recent appreciation in our share price, we continue to view our stock as undervalued relative to the underlying strength of our business units and long term earnings potential and believe share repurchases remain an attractive use of capital. at this time. On the right side of slide 9 you can see Allison's liquidity and leverage metrics at the end of the first quarter. We ended the first quarter with $311 million of cash on hand and approximately $845 million of available revolving credit facility commitments. Our net debt is just under $4 billion resulting in a pro forma net leverage ratio below three times when giving consideration to a full year of earnings from the Allison off highway acquisition. In the near term, we plan to reduce our net leverage to a target of 2x through a recovery in our end markets along with margin improvement through value capture and synergy realization. We will reduce our leverage ratio through both increased earnings and a concerted effort towards debt reduction before moving on to the 2026 guidance update. Building on Dave's comments, I want to summarize our financial performance for the quarter. In summary, our businesses are performing well. Macroeconomic clarity across our end markets would be well received and likely drive increased volumes with favorable drop throughs to margin performance and per share earnings. Importantly, we continue to generate substantial cash flow and invest for long term growth while also reducing debt and returning capital to shareholders. Please turn now to slide 10 for a review of our full year 2026 guidance. Given first quarter results and taking into consideration current macroeconomic and geopolitical uncertainty, we are reaffirming our full year 2026 guidance provided to the market on February 23rd. For 2026 revenue we expect consolidated net sales in the range of 5,575,000,000 to $5,925,000,000. This includes net sales for the Allison Transmission business unit in the range of 3,025,000,000 to $3,175,000,000 and net sales for the Allison off Highway business unit in the range of 2,550,000,000 to $2,750,000,000. For earnings, we expect consolidated net income in the range of 600 million to $750 million subject to the completion of purchase price accounting associated with the acquisition of the Allison off Highway business unit. Our net income guidance for 2026 includes more than $100 million of one time pre tax expenses associated with the separation, integration and restructuring of the Allison off highway business unit. Despite these one time costs, we expect the Allison off highway acquisition to be accretive to net income and earnings per share in 2026. Further, we expect consolidated adjusted EBITDA in the range of 1,365,000,000 to $1,515,000,000. At the midpoint, this implies a 25% adjusted EBITDA margin. For our 2026 cash flow guidance, we anticipate consolidated net cash provided by operating activities in the range of $970,000,000 to $1,100,000,000, consolidated capital expenditures in the range of 295 to $315,000,000, including one time separation and integration capital of approximately $45,000,000 and consolidated adjusted free cash flow in the range of 655 to $805 million. Please note that our consolidated net cash provided by operating activities guidance includes approximately $55 million of one time cash outlays associated with our acquisition of the off highway business unit. This concludes our prepared remarks. Shomali, Please open the call for questions.
OPERATOR
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Again, we do ask everyone in the queue to limit themselves to only one question to allow others a chance to ask. Our first question comes from the line of Rob Wertheimer with Melius Research. Please proceed with your question.
Rob Wertheimer (Equity Analyst at Melius Research)
Yes, hi. Thank you and good evening. There's been a lot that's changed in the world since you announced the deal and even since you closed. I wonder if you could kind of talk about what versus your deal model has changed most of the positive and most of the negative. If you would.
Dave Graziosi (Chair, President and Chief Executive Officer)
Rob, it's Dave. Thank you for the question. So to your point, and I think we made this comment on the last call when we were asked about tariffs and so, you know, we just got on the call, we haven't checked the news in a minute or two to see what happened. That continues, right? The rate of change in volatility in the overall market every day is truly an adventure. However, said that, we're very pleased with the acquisition, frankly, I think we would assess it currently as exceeding expectations in terms of the additional capabilities and frankly, I think the attributes that are required to really excel in this type of market with the level of volatility that we're seeing, the operational footprint flexibility that we now have the additional talent in multiple regions to really address and try to mitigate at the same time, I think, as you know, with trade developments being what they are and some of the regional realignment that's going on, a broader footprint is really much more to our benefit than frankly, we had anticipated. Anticipated when we originally put the deal thesis together. Having said all that, currently the team is very engaged in dealing with those developments, but also, as I mentioned in the prepared remarks, working on value capture as well. One thing that's become clear as we're dealing with various issues is other opportunities as well that are arising out of that. Again, if we go back to pre acquisition, the ability to deal from an Allison perspective would have been, I think, a bit more challenge, frankly, just given the rather limited footprint we had at that stage. So I'd say in summary, very pleased with what we've seen and what we continue to work on, but also our ability to deal with the volatility in the broader markets.
Rob Wertheimer (Equity Analyst at Melius Research)
Okay, that's helpful. So more internal capability and flexibility. That's more beneficial in this changed world. And then on end markets, I mean, you inherited some trophy ish end markets. Any change overall in where you see those either standing or going, and I'll stop there, thank you.
Dave Graziosi (Chair, President and Chief Executive Officer)
No, it's good in terms of an update there. And you know, between the prepared remarks and you know, what we had listed out in the press release, as well as the Investor Relations package, I would say overall our view on that in terms of end market conditions haven't really changed. I think, to use your word, trophy, that still really is our view. If nothing else, I think it's really pointing out again some further opportunities as I think we hopefully get some clarity, all of us in terms of these geopolitical developments, what the future holds. But it's very clear equipment in our end markets continues to be utilized. Then that will always lead to demand. It's just a question of when exactly that will happen. But we feel very good about overall the point that we entered the markets.
Rob Wertheimer (Equity Analyst at Melius Research)
Thank you.
OPERATOR
Thank you. Our next question comes from the line of Tim Thyne with Raymond James. Please proceed with your question.
Tim Thyne (Equity Analyst at Raymond James)
Thank you. Good afternoon. The question is on the target for adjusted ebitda margins of 27 to 29%. Dave, just curious what in terms of your internal model and when you see that as a potential realization and to the extent has that moves up or down in terms of as you close the acquisition, essentially the timeline to hit that has it changed and how you're thinking in terms of realization of that target. Thank you, Tim.
Dave Graziosi (Chair, President and Chief Executive Officer)
I appreciate the question. So I would say overall, very comfortable with the target range that you mentioned from a timing perspective, given a few of the near term issues that have arisen that I just mentioned, really having no, I think longer term impact in terms of our timing. So I think as we said at the time of the acquisition announcement and close, we still feel that's very attainable within a few years. So one thing I would certainly repeat is the work that the team has been doing on value capture and synergies with some of these market condition changes have really pointed out again a number of other areas that the team is diving into as well. So again, feel very good about the range and I would say both the target range as well as timing being realized over the next handful of years.
Tim Thyne (Equity Analyst at Raymond James)
Thank you, Dave.
OPERATOR
Thank you. Our next question comes from the line of Ian Zaffino with Oppenheimer and Company. Please proceed with your question.
Ian Zaffino (Equity Analyst at Oppenheimer and Company)
Hi, great. Thank you very much. Just wanted to ask on the medium duty side, you know, when do we think that starts bottoming out and you know, improving in a larger way and then when we think about just the business in general, what could potentially offset that as far as like vocational. Any other color you could give us. Thanks. Sure.
Fred Boley (Chief Operating Officer and Business Unit Leader)
Ian, this is Fred. Hey, Fred. Relative to medium duty, the first quarter was still extremely soft. I will say we're starting to see some signs that would give you some optimism there relative to sort of the lease rental guys, some of them leaning into the market a little bit. I think kind of the unknown for 2H26 is really where do we end up on medium duty engines, which I think we need some direction from the EPA and how that's going to impact the cost of engines going into 2027. As we've had the year modeled, we have had and continue to have the second half stepping up somewhat from the first half relative to class eight straight truck. I would say it was a little stronger in Q1 than our initial expectations and continues to remain steady demand.
Ian Zaffino (Equity Analyst at Oppenheimer and Company)
Okay, thanks. And then just as a follow up on use of capital or use of cash flow. I know you talked about buybacks and deleveraging. How are you kind of prioritizing one versus the other? Because I know the stock is cheap, but at the same time you want to delever. And then are we kind of done on the M and A side for the foreseeable future? Just given you're in the midst of integrating a very large one and. Yeah, just any color there. Thanks.
Scott Mel (Chief Financial Officer and Treasurer)
Yeah, it's Scott on the capital allocation. I think as I mentioned on the call, I mean, fortunately we haven't had to make overly challenging decisions on the allocation of capital. We feel very comfortable with the cash generating abilities of both the business units and the enterprise overall. So we've talked about this year targeting getting down to a two times net leverage multiple here in the very near future, next couple of years. You know, we paid 150 million off in the first quarter. I think we should anticipate to see that rate somewhat continue as we go throughout the course of the year. And you know, obviously we're still in the market repurchasing shares. Obviously, you know, at share prices where they are today, it's not as you know, dilutive to shares outstanding, but still demonstrative of our ability to continue to buy that share. So that's, that's not going to change. So I think what you saw in the first quarter is a good precursor to what we expect to see over the course of the rest of the year.
Dave Graziosi (Chair, President and Chief Executive Officer)
And the second question, and Ian, on your second question there, in terms of future inorganic opportunities or otherwise, we continue to be active, assessing different opportunities. So our capital allocation model that Scott went through, overall leverage targets, et cetera, the ability of the business, the new business, so to speak, to generate cash, we're continuing to be active, looking at different opportunities. So that being said, as you know and your comments there, the team is very engaged working on a sizable acquisition with our new team members. So in the meantime, we're also assessing as part of the combined business what other opportunities could present themselves from an inorganic perspective. So we, as I said in summary, remain engaged in that process and we'll certainly provide an update should one be necessary.
Ian Zaffino (Equity Analyst at Oppenheimer and Company)
All right, great. Thank you very much.
OPERATOR
Thank you. Our next question comes from the line of Jerry Revitch with Wells Fargo Securities. Please proceed with your question.
Jerry Revitch (Equity Analyst at Wells Fargo Securities)
Yes, hi, good afternoon everyone. I'm wondering if you could just talk about your expectations for sequential Performance in the business. I think normally for both the Allison and the Dana off highway business, we have production ramping up sequentially. 2Q versus 1Q and margins up sequentially. Is that how we should be thinking about this year? And then separately, can you just comment on your expectations of synergy capture as we go through the year? Do you expect any cost benefits, 2Q versus 1Q.
Fred Boley (Chief Operating Officer and Business Unit Leader)
From a sequential standpoint? Jerry, this is Fred. We do expect things on the transmission side to step up sequentially. And as we have it modeled, we have Q2, you know, up off of Q1 and then Q4, which is based on the number of days, you know, stepping down a little. I think, you know, the driver there will really be whether there's a meaningful Pre buy in Q4. And Craig, maybe you want to talk a little bit about what you're seeing sequentially.
Craig Price (Off Highway Business Unit Leader)
Yeah, sure. So from the off highway side there is a step up in Q2 and then obviously a greater portion of our business is in the European segment where in Q3 you get into the European holiday mode. So Q3 and Q4 kind of tend to go down for us. But that's the picture from the off highway side.
Scott Mel (Chief Financial Officer and Treasurer)
Yeah, go ahead. Oh no, perfect. You read my mind. I was going to ask this interview capture part of the question. Thank you. Yeah, it's Scott. Jerry, I, you know, as Dave and I mentioned, you know, look, we're getting, we're starting to get much clearer line of sight relative to the specific opportunities, size, timing, you know, everything that you need to get start to see that impact through the financials. What I will tell you is, you know, our expectations on the, on the amount of opportunity and the timing of the opportunity has not changed whatsoever. And you know, as we go throughout the course of the year, I think you should expect to see and hear from us relative to providing more detail on impact and you know, updates on kind of when we think we'll get to full run rate of those of those impact.
Jerry Revitch (Equity Analyst at Wells Fargo Securities)
Super. Thank you. And Fred, can I just ask a clarification you mentioned? We'll see what the EPA wants to do. What's the range of outcomes? Is there a scenario under which EPA 27 is delayed or considering the timing of engine rollout, is there potential for higher pre buy in media duty? What's the range of outcomes that you alluded to that you think is reasonable?
Fred Boley (Chief Operating Officer and Business Unit Leader)
We're not, you know, we're not expecting a delay. I think most are expecting some sort of modification to the warranty. And then my question, that specific comment was really relative to medium duty and the ability of everybody to meet the requirement at the beginning of 2027 and if not what could be some associated fees for being non compliant and then how that might impact a pre buy or not in the second half of 2016.
Jerry Revitch (Equity Analyst at Wells Fargo Securities)
Thank you.
OPERATOR
Thank you. Our next question comes from the line of Tammy Zakaria with JP Morgan. Please proceed with your question.
Tammy Zakaria (Equity Analyst at JP Morgan)
Hi. Thank you so much. So the 73 million of off highway revenue this quarter, could you tell us how that compares to to last year and related to that price realization? Could you comment on price realization by segment on highway and off highway please?
Fred Boley (Chief Operating Officer and Business Unit Leader)
I'll take the price one first and then let Craig, this is Fred. Let Craig roll through what he's seeing kind of in generalities on a year over year basis. But from a price standpoint with Allison transmission in the quarter we generated about 325 basis points of price. We expect to be in that range for the full year. And then as we talked about on the last earnings call, anticipating price for Allison off highway to be neutral year over year
Craig Price (Off Highway Business Unit Leader)
and then from the off highway end market year over year comparison. So I would say that we were up probably about 10% year over year, just over 10%. It was a combination of currency factor given the footprint or sales in Europe. Obviously we went from a euro conversion of 107108 to 117. But we also saw a significant strong demand across a number of our segments as Dave alluded to in his prepared remarks. We saw the construction market that was positive for us in Europe but was slightly negative in North America. Agriculture was a positive trend as well for us. The different sub segments of high horsepower business in Europe was strong also the low horsepower business out of India came in strong. And then obviously the mining segment was up significantly as well. Obviously driven by the higher commodity prices that are seen at this time.
Tammy Zakaria (Equity Analyst at JP Morgan)
Understood. Thank you.
OPERATOR
Thank you. Our next question comes from the line of Angel Castillo with Morgan Stanley. Please proceed with your question.
Angel Castillo
Hi, good evening. Thanks for taking my question. Just was hoping to go back to the end market discussion. I think Dave, you mentioned that end market views haven't really changed, but it sounds like on at least the North American highway there's some pockets that maybe are coming in a little bit better than expected and fully understand. I guess there's still a lot of uncertainty in the second half. But as you think about the unchanged full year guide, could you just go through the other transmission end markets, any others where you're seeing particular kind of pockets of maybe Better performance. I don't know if defense looked like it was a pretty good quarter here. Any others that maybe are offsetting that and where you're seeing a little bit more weakness in particular, would love any kind of commentary you have in terms of order books or customer commentary.
Fred Boley (Chief Operating Officer and Business Unit Leader)
Angela, this is Fred. So I think we've sort of already covered North America on highway, the largest end market. But you mentioned descend. I mean it was an amazing quarter. Revenue up 64%. We do anticipate the balance of the year looking a lot like Q1. I'd say relative to the quarter, things were a little softer outside North America on highway than what we had initially modeled. We do have that stepping up sequentially into Q2. Expect the service parts business to be fairly steady. Craig mentioned what he's seeing from a mining standpoint in his bu. I think we do have some upside in our global off highway relative to mining as well as hydraulic fracking.
Angel Castillo
Got it. That's helpful. And maybe just some housekeeping questions. Just as we try to kind of model the pro forma business, I guess the 12 million of corporate I think is that we saw in the first quarter. Is that a good run rate for how we should think about that that part of the business, the central group on an EBITDA basis. And then will you be giving the end markets that you gave for off highway historicals for 2025? Yes.
Scott Mel (Chief Financial Officer and Treasurer)
Scott, I'll answer the second question first. No, we do not intend to provide that level of detail for the business since we did not own it. Relative to the center group function. EBITDA number of 12 when you carve out the non recurring in the non cash stock comp, I think that's a reasonable number to apply on an annualized basis. So yes.
Angel Castillo
Got it. Thank you.
OPERATOR
Thank you. Our next question comes from the line of Luke Young with Baird. Please proceed with your question.
Luke Young
Thanks for taking the question. Maybe just continuing on that defense thread. Fred, wondering how you think about the interplay between defense and North America on highways. The latter comes back later this year. If we look historically, there's been a level of interrelationship there from a supply chain standpoint at least to some extent in the past. But maybe looking forward that relationship's not as strong or as relevant in the current geopolitical environment. Can you just talk about that interplay a little bit? Thank you.
Fred Boley (Chief Operating Officer and Business Unit Leader)
Yeah, I would say at this point with a lot of the growth in defense being driven by non US government outside North America volume and we talked about the successes we're Having, you know, with Hanawa and Korea with their K9 Hollister, you know, our 3040 MX and our 4040 MX, you know, new products for us with the Brzuk out of Poland, the Kirkutt out of Turkey, BAE Haglin. So there's a lot of, you know, as we just sit here, I mean there's a really good backdrop for defense. We've invested in these products, you know, beginning, you know, even pre pandemic they're coming to market. We're extremely excited about them and expect to have a great year in defense. So I would not though just based on the fact that again it's primarily driven by outside North America, see much connectivity back into the North America on highway end market
Luke Young
and maybe just related to that, is any of this flowing through the outside of North America on highway civilian? I know you can tend to pick up some commercial terms that are better there. Are we seeing any of that in that part of the business?
Fred Boley (Chief Operating Officer and Business Unit Leader)
We do flow the wheeled portion of the defense through the outside North America on highway primarily because we're selling a lot of times through the same oem and we are seeing strength primarily in Europe relative to wheeled volume. We're also seeing some strength in Europe from a vocational standpoint as well.
Luke Young
Very helpful. I'll leave it there and thank you.
OPERATOR
Thank you. Our next question comes from the line of Kyle Menges with Citigroup. Please proceed with your question.
Kyle Menges (Equity Analyst at Citigroup)
Great. Thank you guys for taking the question. I just wanted to go back to some of the pricing comments and how to think about price versus cost for the two business units for the year. The 350 or so basis points for the Allison transmission piece of the business at that level, are we price cost positive for the year, Are we confident in that? And then I guess it sounds like for the off highway business if price is flat, I would assuming cost inflation is greater, so then the price cost would be negative in that business for the year.
Scott Mel (Chief Financial Officer and Treasurer)
Yeah, so it's. Scott, let me, I'll try to answer and then I'll let Craig and Fred lean in if they'd like. But on the, on the Allison transmission business, I mean yes, we do anticipate our year over year price to cover our inflationary cost factors with obviously the delta in the first quarter being the volume and mix impact there on the off highway side, you know, while they obviously have less pricing leverage, they certainly have shown the ability to take costs down on a year over year basis relative to either operations or purchasing. But I think that maybe something Craig, you can expand on a bit?
Craig Price (Off Highway Business Unit Leader)
Yeah, sure. I would classify it as pretty neutral. I think that to Scott's point, there's some, let's say minor price give backs, but we're able to offset those within our operational structure.
Kyle Menges (Equity Analyst at Citigroup)
Helpful. Thank you.
OPERATOR
Thank you. Our next question comes from the line of Sharif El Sabahi with Bank of America. Please proceed with your questioning.
Sharif El Sabahi (Equity Analyst at Bank of America)
Hi, good afternoon.
Scott Mel (Chief Financial Officer and Treasurer)
Just looking at the first quarter, adjusted EPS was up about 6% year over year and adjusted free cash flow is down about 34%. I understand reaffirm guide calls for both to grow on a year over year basis for 2026, but can you give us some color on the seasonality of working capital for the new business and what Allison's free cash flow profile looks like now through the year? Yeah, so a couple questions in there. I think the cash flow profile is going to be very similar to what you experienced prior to the acquisition with it being said that the first quarter for the off highway business segment or business unit is a obviously a substantially meaningful user of cash during the quarter. Just given some of the seasonality and the fact that, you know, it's a European centric organization. But I think as you think about your modeling on a go forward basis, you should expect to see, you know, the quarterly and quarter to quarter trends that you've seen in the past in terms of Q1 being a, the use of cash, Q2 turning the other way, Q3 kind of turning back and then Q4 as we get to the end of the year, generating cash as we get to the end of the year.
Sharif El Sabahi (Equity Analyst at Bank of America)
Thank you.
OPERATOR
Thank you. And we have reached the end of the question and answer session. I would like to turn the floor back to David Graziosi for closing remarks.
Dave Graziosi (Chair, President and Chief Executive Officer)
Thank you, Shamali, and thank you for your continued interest in Allison and for participating on today's call. Enjoy your evening.
OPERATOR
Thank you. And this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.
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